Episode 10 – Should We Be Helping Our Adult Children Financially?
As parents, we always want to protect our kids and make sure they’re okay. We pick them up when they scrape their knees trying to ride a bike and give a stink eye to the other kids who are mean to them on the playground. But at some point we all know we have to stop picking them up and dusting them off…and let them do it themselves.
COVID has created a lot of uncertainty in terms of jobs and finances, and many people have kids wanting a helping hand financially right now.
In this podcast, I’m chatting about what you should think about if you have adult kids who want financial help. Give it a listen now to learn what you need to consider if you’re thinking about giving your grown-up kids financial help.
Hello, and welcome back to another round of “Our Heart of Money Talks”. This is episode 10 and today I want to talk about if we should be helping out our adult children financially, during the tough times of COVID-19.
Many young adults are reeling from the economic fallout of the pandemic. According to Statistics Canada, the unemployment rate in Canada in November was 8.5%.
Now that’s higher than in previous years. So it seems that there aren’t as many jobs as last year. COVID really hit some people in industries, hard, with lost jobs and businesses. These are unique circumstances that we might not have ever imagined to happen. Parents may want to help. They may feel like they have to help, but here is my disclaimer to you.
You should not put your own retirement at risk.
I have 21 and 23-year-old girls. They wanted to move out on their own. And as you can imagine, the nature of what I do for a living, being a financial planner, I went through a cash flow planning process and made a spreadsheet. I wanted to show them if they just stayed at home for another couple of years, how much they would save.
I even added in some compounded interest.
I remember being that age and I remember being stubborn and I remember moving out and sharing a place with some girlfriends. Then our rent was $300 a month shared, three or four ways.
Anyways, my daughters moved out.
They share rent three ways and they found a nice cheap place. It’s gorgeous. I love it and I feel comfortable with it, but of course, you can imagine I have this vision of just burning up cash. So now what my husband and I have had to do the pinky promise on this is that we will not help them out with giving them cash.
Now, instead, they can come for meals and they’ll always have a place to come back and live. They’ve still got their rooms, and we’ll provide shelter. So our support will be emotional.
We’ll throw in shelter. That’s a roof over their head, but we will not give them rent money. If they were to lose their jobs or find themselves in need, they can come back home.
Now that might be some tough love and we’ve had to pinky promise to follow through with that because I know it can be hard sometimes and sometimes we can all be softies, even if children are older.
So that circumstance works because of the age of my daughters. They maybe don’t like their jobs aren’t very permanent – they could be unstable.
The other thing is that they’re young enough that they haven’t committed to purchasing a home and they don’t have car payments. So the consequences are a little bit easier for them. Now if children are much older or you have adult children that live in different cities…how does this look?
If adult children have lost work due to COVID and are struggling financially, should you help them out? This is a really tough dilemma and I can see it. I can understand it. I’m on the cusp of that age with my daughters. Should you be reaching into your retirement nest egg and using up your savings that you’re going to need down the road?
That’s an absolute no. You cannot put yourself at risk. Fixed income and with a financial plan that needs to be followed to make sure your money lasts your lifetime makes it very hard. Now that’s going to be really hard if you have to keep dipping into it and you’re pulling $30,000 or $40,000 each time to help your kids.
Now, let’s say you have extra cash from a trip you can’t take because of COVID. I know people are stockpiling and sitting on some savings because they haven’t had anywhere to spend, or you have extra that is not outside your norm of spending.
Now that’s different.
I think there’s this weird new version of adulthood. It might be leaving home then coming home again, then leaving again, and then possibly returning again as jobs and income changes occur. On average, our children, our adult children, are going to have five different careers. This was seen back in the Great Recession, the boomerang of coming in and out and having to move back home and it might be making a comeback.
I know it’ll probably be happening in my house. I guarantee that I definitely have not changed up the bedrooms and gotten rid of their stuff. I know they’re probably coming back at some point.
It has been documented that Gen Z and millennials have been hit the hardest financially by COVID a recent RBC study, a family finance poll shows that more than nine in ten parents are financially supporting their adult children.
So what are some of the things we can do as parents with the younger adults? Like with my daughters, I’m just trying to be a leader and guide them. I’m trying to give them the basic financial literacy of moving out and budgeting.
It’s one of the important things that we can do for our children, especially the ones that just moved out. It’s the check-ins. It’s asking how cash flow is. I’ve shared my cash flow strategies.
I have a process that we coach in our office and it’s based on one week of cash spendings. It takes away that idea of telling someone that they can’t have something…instead, it’s just giving them parameters to work within, and then they can choose the priority of how to spend that free cash.
So I’ve shared that with them now. It’s not all sunshine and rainbows in these conversations because even though I’m a financial expert, I am still just their mom. I’m sure I can come across as nagging and a pain in the butt. And I’m sure they’ve had to bite their tongue and I’ve had to bite my tongue.
But at least it’s a step of open communication and trying to offer some emotional support and experience, which is good. We have to talk about money. It can’t be a taboo subject that we’re worried about offending someone or stepping on, on your children’s toes.
Is there enough coming to cover what is going out? That’s the statement right? That is enough to start the conversation. We’re not talking about dragging up the skeletons of what you spent money on and showing your statements. But think, how much do you make? It’s the simple question of, is there enough coming in as there is going out, that’s going to be the open door to the conversation.
We have to be leaders with our adult children and talk about finances in a healthy, positive conversation. Now if offering shelter is not enough and your children are in a financial crisis and you want to help, you have to know your limits. That means you have to know if you even can help out a little bit.
So think…are things already tight? Do you have debt? Do you have mortgage payments in retirement? Do you have payments that have to be made? If so, then just stop right there. The answer is no, you cannot help financially. So practice what you’re going to say and rehearse so you can be strong.
Now, this is when you need to meet with your financial planner and tell them the situation about your adult children and ask, “Do I have enough? Can I help?”
They’re going to sit down and they’re going to crunch the numbers to update your financial strategy and the situation. If you can’t help, rehearse and then let the financial planner take the blame. Tell your family, “My financial planner says that I can’t afford it and I’ll be putting myself in jeopardy as well.”
And ask your financial planner to meet with your adult children! Maybe they can offer some good advice and some alternative suggestions to explore. Remember? Advisors. We are compensated 1% generally and it should be a transparent fee. These meetings can help open the door to your family and having these family discussions.
And don’t feel bad, don’t feel like you can’t ask them because you’re asking them to do a favor. No, they’re managing your money. They’re taking care of you. They want the best thing for you. This is part of their job.
This is part of my job as a financial planner. I have no problem making myself out to be the bad guy and saying, “No, my job is to protect my client, but it’s also to be there as the third party and communicator.”
Now, if you feel you have plenty of resources, meaning assets and money, I suggest you have your financial planner run a few planning scenarios. Talk about the risk management, and the what-ifs to ensure that you can quantify and qualify that you actually have the ability to help.
Double-check that there are no hidden tax consequences to your helping and ensure that your retirement is not jeopardized then with the amount that you have allocated as help. I do think you need to define that amount, otherwise, it becomes easy, a phone call here and there.
Know your limits, and then I suggest you can make this a formal agreement with your child. This will instill some responsibility and accountability, make it a loan, a promissory note, and come up with some expectations around that.
Now, I’m not talking about conditional love. I’m talking about just having some responsibility and treating it as an example of how you want them to learn about money and financial literacy, which is why you have to make it formal.
I think they were still going to see the repercussions of COVID into 2021. Some businesses will be affected and there might be uncertainty in certain jobs.
So it’s okay to explore the possibility that you might want to help out your child if they lose a job. And I think it’s good to get in front of this, meaning that if you know that there are already some issues financially.
I think it’s okay to start the conversation right now with your financial planner and just know your perimeters, because you’re going to maybe have to practice saying no, and you might need that time. Think it out and review this with your financial planner. If you think this might happen, then assess how it’ll affect you long-term.
Run the scenarios if you need to practice saying no, I know this is hard. I’m a parent on the cusp with daughters that might eventually one day need that big help. And like I said, my husband and I have had to pinky promise each other to stay strong and say, no, if we get the call to cover that, one month of rent or even a hundred dollars, something that doesn’t seem very big to me.
I still have to set the boundaries. I’ll offer shelter and a meal, but the rest is a no for right now, just because of their age and situation. I’ll keep you posted on it because once again, I say the more we say it, I just put it out there to the podcast universe. I have to stay strong.
So the more I say it out loud, the stronger I’ll stay. And that’s what I’m thinking that you need to do too. You have to say no. How are you going to say it? Structure that sentence and practice.
Jeez. Parenting never ends, does it? It actually just gets a little bit more complicated later in life.
Stay strong and send me a note. What do you think I want to ask you out there? Should we be helping out our adult kids through COVID? You can email me at [email protected] or go to our webpage and comment on the blog post, because this one, I really am interested to see some of the answers and some of you and how you’re feeling.
That’s it till next week. We’ll talk soon.